The Impact of New Overtime Regulations on Districts, Congregations, Schools and Other Religious Organizations

Transcription

1 The Impact of New Overtime Regulations on Districts, Congregations, Schools and Other Religious Organizations Presented by: Val Rhoden-Kimbrough, LCMS Sherri Strand & Krissa Lubben, Thompson Coburn LLP 1

2 Introductions Val Rhoden-Kimbrough Welcome! Over 500 participants today Foreshadowed significant change November 2015 during the annual business Managers meeting Goal of the webinar provide guidance and implementation options for religious organizations 2

3 Agenda FLSA Basics and Applicable Exceptions Does the FLSA Apply to Your Organization? The Revised Regulations Implications and Potential Problems Approaches to Compliance 3

4 The Fair Labor Standards Act (FLSA) Federal law that governs how workers are paid Enacted in 1938 More than 7 million workplaces are subject to the FLSA Enforced by the Department of Labor s Wage and Hour Division Covers almost every employee in USA 4

5 The Basics Presumption All Workers are Entitled to Minimum Wage and Overtime Sets the federal minimum wage ($7.25) Requires that all non-exempt employees be paid 1.5 times hourly rate for 40+ hours in a week What is a week? Fixed and regularly recurring period of 168 hours seven consecutive 24 hour periods 5

6 The Basics Minimum Wage Covered, non-exempt employees must be paid not less than the federal minimum wage for all hours worked The minimum wage is $7.25 per hour effective July 24, 2009 Minimum Wage in Missouri: $7.65 Minimum Wage in Illinois: $8.25 Minimum Wage in California: $10.00 Cash or equivalent free and clear 6

7 The Basics Exclusions Excludes some groups of individuals from FLSA Coverage Employees working outside the U.S. Doctors and Lawyers Others not generally applicable to our organizations Agricultural workers Police and Firefighters 7

8 The Basics Exclusions Cont. Excludes some groups of individuals from FLSA Coverage Teachers Primary duty must be teaching, tutoring, instructing or lecturing in an educational establishment. Preschool teachers if primary duty is to care for the physical needs of children will not generally satisfy test. Educational Administrators 8

9 The Basics Exclusions Cont. Excludes some groups of individuals from FLSA Coverage employees employed by an amusement or recreational establishment, organized camp or religious or non-profit educational conference center but only if: Establishment does not operate for more than 7 months a year or Average receipts for any 6 months were not more than 1/3 of its average receipts the other 6 months. 9

10 The Basics Exclusions Cont. Excludes some groups of individuals Persons such as nuns, monks, priests, lay brothers, ministers, deacons and other members of religious orders who serve pursuant to their religious obligations in schools, hospitals and other institutions operated by their church or other religious order shall not be considered employees. - DOL Field Operations Handbook 10

11 Ministerial Exception A judicially created doctrine under the First Amendment First affirmed by the Supreme Court of the United States in the 2012 Hosanna-Tabor Opinion Bars courts from considering a church s employment decisions regarding clergy and closely-related positions The title minister is not always conclusive 11

12 Ministerial Exception Continued Examples: The ministerial exception would apply to ordained ministers, most commissioned ministers, directors of youth ministry some pre-school teachers, maybe church choir directors, organists, etc. Likely would not apply to janitors, bookkeepers, clerical employees etc. Each case will depend on the particular facts 12

13 The Basics Exemptions If other exceptions such as the ministerial exception or the teacher exclusion do not apply, look to the FLSA s exemptions. FLSA Carves out several white collar exemptions from minimum wage and overtime requirements There are a few others such as the highly compensated employee, outside sales, and computer professional exemptions 13

14 The Basics - What is Exempt? Minimum Wage & Overtime Provisions do not apply if: Paid on a salary basis Meet the duties test Meet the salary test of at least $913 per week/$47,476 annually (effective December 1, 2016) 14

15 The Basics - Salary Basis Receive a fixed salary that is not subject to reductions based on quality or quantity of work Not required to pay for workweeks in which employee performs no work Must pay employee that fixed salary if they perform any work during the week Some exemptions 15

16 The Basics - Exemptions 1. Administrative 2. Executive 3. Professional Learned Professional Creative Professional 4. Computer Professional 5. Outside Sales 6. Highly Compensated 16

17 FLSA Exemptions Administrative Employee Exemption Paid on a salaried basis Primary duty of non-manual work related to management of employer s business or customers Exercise independent judgement and discretion in matters of importance 17

18 FLSA Exemptions - cont. Executive Employee Exemption Paid on a salaried basis Primary duty of managing the enterprise or department or subdivision Direct the work of at least two full-time employees; and Authority to hire or fire other employees, or can make recommendations 18

19 FLSA Exemptions - cont. Professional Employee Exemption Paid on a salaried basis Learned Professional Primary duty of work requiring advanced knowledge Intellectual in character Exercise of discretion and judgement Field of science or learning; and Prolonged course of specialized intellectual instruction 19

20 FLSA Exemptions - cont. Professional Employee Exemption Paid on a salaried basis Creative Professional Primary duty of work that is original and creative in a recognized field of artistic endeavor Fields such as music, writing, acting and graphic arts 20

21 FLSA Exemptions - cont. Computer Professional Paid on a salary basis Minimum salary or $27.62 per hour Outside Sales Primary duty making sales or obtaining orders or contracts for services for the use of facilities Must be customarily and regularly engaged away from the employer s place of business in doing job 21

22 FLSA Exemptions - cont. Highly Compensated Employees Earns minimum annual compensation Effective Dec. 1, 2016: $134,004 Non-manual work Performs at least one of the administrative, executive, or professional exemption duties 22

23 Is Your Organization Subject to the FLSA? Two types of coverage under the FLSA: Enterprise Individual 23

24 Enterprise Coverage The FLSA applies to businesses with annual sales or business of at least $500,000. Non-profits: generally are not covered enterprises unless they engage in commercial activities that result in sales made and business done. 24

25 Enterprise Coverage cont. In determining whether a non-profit is a covered enterprise, the DOL only considers activities performed for a business purpose. Not Considered: Income from contributions, membership fees, dues, and donations (cash or non-cash), used in the furtherance of charitable activities 25

26 Enterprise Coverage cont. Example: A non-profit animal shelter provides free veterinary care, adoption services, and shelter for homeless animals (charitable activities). In addition, the shelter provides veterinary care for a fee to customers (commercial activities). Employees engaged in the commercial activities: covered by FLSA if revenue reaches $500,000. Employees of the organization s charitable activities: not covered on an enterprise basis; those activities do not have a business purpose 26

27 Enterprise Coverage cont. Covered regardless of annual sales, business done, or non-profit status: Hospitals Schools and Preschools Government Agencies Businesses providing medical or nursing care for residents 27

28 Individual Coverage Even if your organization does not qualify as a covered enterprise, employees may be covered by the FLSA if they engage in interstate commerce or in the production of goods for interstate commerce. 28

29 Individual Coverage cont. Interstate commerce- broad Examples of engagement in interstate commerce: Making/receiving interstate telephone calls Shipping materials to another state Transporting persons or property to another state Soliciting donations from individuals or entities in another state Does not include isolated incidents 29

30 New Regulations - Reasons for Changes In 1975, 62% of workers were eligible for overtime. Today, only 8% of the workers are eligible. Rules regarding exemptions from overtime have not kept up with the cost of living. Poverty Line is $24,008 and the amount to be exempt from overtime is $23,600. Fair Day s Pay for a Fair Day s Work 30

31 Historical Background of Regulations 1975 to 2004 minimum salary for exemptions was $250/week No major changes to Part 541 regulations since 2004 DOL has been working on new proposed regulations since March

32 The DOL s Goals for New Rule 1. Increase the minimum salary required for any white collar exemption 2. Simplify the identification of non-exempt employees 3. Create a mechanism to automatically update minimum salary requirements for exemption 32

33 Initial Proposal Issued June 30, 2015 Administrative, Professional and Executive Exemptions: Increase minimum salary from $455/week to $921/week Increase minimum salary for highly compensated employees from $100,000 to $122,148 Computer employee exemption: increase minimum salary to $921/week or, if paid on an hourly basis pay $27.63 per hour (no increase to base hourly rate) Indexed increases 33

34 New DOL Regulations Issued May 18, 2016 Effective December 1, 2016 Could have been worse, could have been better 34

35 New DOL Regulations- cont. Doubled the minimum salary threshold from $455/week ($23,600/year) to $913/week ($47,476/year) less than originally estimated Equals 40 th percentile of full-time salaried workers Subject to adjustment every 3 years 35

36 New DOL Regulations- cont. Quarterly, non-discretionary bonuses, commissions and incentive payments can be used to meet at up to 10% of the minimum salary threshold 36

37 New Highly Compensated Employee Rule DOL raised the threshold to $134,004 34% increase Must receive at least $913/week on a salary basis; the remainder can come from other nondiscretionary income Equals 90 th percentile of full-time, salaried workers No credit for quarterly nondiscretionary bonuses allowed for the first $913 per week, but allowed to achieve remaining salary 37

38 Duties Test The DOL did not change the duties tests, despite some threats to do so Same primary duty analysis applies to all exemptions 38

39 Automatic Adjustments to Minimum Salary DOL will automatically update minimum salary at 40 th percentile of full-time salaried workers in the lowest-wage Census Region Same approach for Highly Compensated, but at 90% percentile Every three years at the first of the year Will give 150 days notice before effective First update: January 1,

40 What does this mean for non-profits/religious organizations? If subject to the FLSA, must comply with the changes No special rules or delay in implementation for nonprofits December 1,

41 Implications Employees not making $47,476 need to have salary increased or reclassified as non-exempt/hourly If converting to non-exempt: Need to monitor hours and overtime Increased record keeping Cultural shift Watch for pitfalls with hourly employees 41

42 Potential Problems - Volunteering Fundraisers, Sunday School Teaching, Mission Work, Galas, Walks, Runs, Golf Tournaments, etc. Do we have to pay employees for their time? Is it required? Is it one of their job duties? Strategies day/time off in same workweek 42

43 Potential Problems Off the Clock Work Non-exempt employees must be paid for all time worked even if not performed at the organization or even if it is not requested. Checking Answering phone calls Taking work home to finish Working from home Working before clocking in 43

44 Potential Problems Meal and Rest Breaks Most states do not require breaks. However, if you do provide: Pay employee for breaks less than 20 minutes Pay employee for breaks more than 20 minutes, such as an hour lunch break, if employee is not completely relieved of duties Do not need to pay for breaks of more than 20 minutes if the employee is completely relieved of duties 44

45 Potential Problems Travel Detailed Rules regarding when travel time is compensatory for non-exempt employees Depends on time of day, mode of transportation Normal commute to and from work is not compensatory 45

46 Potential Problems Seminars, Meetings & Training Time spent by non-exempt employees must be paid unless meet all 4 criteria: 1. occurs outside normal scheduled hours of work; 2. Completely voluntary; 3. Not job related; and 4. No other work is performed during the seminar, meeting or training. 46

47 Potential Problems Comp Time Does not exist for hourly employees who do not work for the government Can only allow someone to have time off in the same workweek Can use it with exempt employees or employees who are excluded from the FLSA s overtime regulations 47

48 Potential Problems Part-Time Employees To be exempt, an employee must be paid at least $47,476 per year regardless of the number of hours the person is expected to work. There is no proration of the required salary amount based on part-time status. 48

49 Potential Problem Seasonal Employees For employees who are hired to work less than 12 months a year, the employee can still be exempt if: Paid at least $913 per week Meet the duties test Perform no work during the other months not engaged to work 49

50 Recordkeeping The FLSA requires that all employers subject to any provision of the Act make, keep and preserve certain records. Records need not be in any particular form. Time clocks are not required. Every covered employer must keep certain records for each non-exempt employee. 50

51 Required Posting Covered employers must post a notice explaining the FLSA, as prescribed by the Wage and Hour Division, in a conspicuous place. 51

52 Enforcement Penalties Enforcement is by the Wage & Hour Division of the DOL If violations are found, employers are advised of steps to correct violations, secures agreement to comply in the future and supervises voluntary payment of back wages 2 year statute of limitations and if willful, 3 years If no voluntary agreement with DOL Lawsuit can be brought by DOL and recovery of liquidated damages and penalties for willful violations Private cause of action by employee s attorney 52

53 Suggested Analysis Step 1 Coverage Is your organization a covered enterprise subject to the FLSA? If not, are any of your employees subject to the FLSA under the individual coverage? 53

54 Suggested Analysis Step 2 Exclusions If subject to the FLSA, are any of the employees not covered because of their particular job? Clergy or other religious worker under the ministerial exception Teacher, lawyer or doctor Other 54

55 Suggested Analysis Step 3 Exemptions If not excluded, can the employee qualify for an exemption from overtime? Paid at least $47,476 annually or $134,004 for highly compensated Paid on a salary basis Meets the duties test for the administrative, executive, or professional exemptions or highly compensated employee exemption 55

56 Suggested Analysis Step 4 Compliance Options If no exclusion or exemption applies and the employee is subject to the FLSA, then you must take action regarding the employee if they are currently classified as exempt. 56

57 Compliance Option 1 Pay overtime to those earning under $47,476 Legally conservative Lower paid salaried workers less likely to be exempt, this is the best time to reclassify those workers Move/manage overtime to other clearly exempt workers concurrently to reduce costs Make sure new over-time eligible employees are trained to accurately report time worked 57

58 Compliance Option 2 Adjust base wages downward for new overtime-eligible employees who frequently work overtime, in order to keep employee take-home pay static May create issues with employee morale; litigation Still need to reclassify Some states require notice of downward pay adjustments 58

59 Compliance Option 3 Raise salaries to meet or exceed $47,476 threshold Courts and DOL will likely place more scrutiny on the exemption status of individuals who earn minimal compensation Make sure employees can satisfy duties test 59

60 Compliance Option 4 Take advantage of the 10% non-discretionary bonus credit Remember highly compensated employees must get 100% of first $47,476; bonus credit only available for remainder Must be quarterly and non-discretionary Schedule system for catch-up payments Plan review will be essential 60

61 Compliance Option 5 Hire more employees to cut down on potential overtime hours and cap current employees at 40 hours/week Unlikely to be realistic for most organizations 61

62 Compliance Option 6 Use the Fluctuating Workweek Little used, widely ignored regulation, 29 CFR Permits employers to pay base salary for all hours worked, and pay one-half base rate for overtime hours These employees are overtime-eligible Have agreement with employee that base salary is base compensation for every hour worked Base salary must cover minimum wage for all hours worked Not available in every state Likely to be litigated Do not implement without legal review 62

63 Action Items for Your Organization Gather the information you need now, while you have the time Review salary levels Evaluate if not subject to the regulations Are your job descriptions current, accurate and complete? Consider collecting updated duties information during review / raise time Develop questionnaires and/or updated selfevaluations 63

64 Action Items for Your Organization Cont. Have a point-person and a communication plan How will you message these changes? Determine how to get the same amount of work done without overtime Need new policies and procedures re: overtime Consider whether you need to change the workweek Determine how time will be tracked for non-exempt employees Need new policies and procedures re: time-keeping 64

65 Reclassification? Consider additional reclassifications beyond mandatory revisions Lack of changes to the duties test poses challenge to reclassifications Potential admission that employee has not been performing exempt duties under existing rules May be best opportunity to correct misclassification Other coworkers will be getting reclassified 65

66 Contact Information Sherri C. Strand, Esq. Thompson Coburn LLP Krissa P. Lubben, Esq. Thompson Coburn LLP